Editor's Note:Below is a brief excerpt from Hedgeye Potomac Chief Political Strategist JT Taylor's Capital Brief sent to institutional clients each morning. For more information on how you can access our institutional research please emailsales@hedgeye.com.

HILLARY THE HISTORIC

Hillary Clinton has secured enough delegates to claim the Democratic presidential nomination and is poised to become the first female candidate to lead a major party to the White House in U.S. history. A handful of super delegates pushed Clinton over the finish line of 2,383 ahead of a jampacked day full of primaries. Clinton will call for the Democrats to unify behind her candidacy as primary season comes to an end today – and she and party leaders expect Bernie Sanders to follow suit.

To pad her lead, look for her to pick up a sizeable chunk of delegates in the six states voting today; her campaign hopes that being declared the presumptive nominee 24 hours before CA votes doesn’t suppress turnout and hand a victory to Sanders.

BERNIE’S CALIFORNIA DREAM

Now that Clinton has been declared the presumptive Democratic nominee, this leaves Sanders with a hard decision to make – accept it or fight until the death. Sure, a win in CA would help him pitch his future to superdelegates - but to what end? Sanders’ case is broken - Clinton won a majority of the states, pledged delegates and super delegates - not to mention tens of thousands of more votes. We think that despite Sanders’ reputation for obstinance, he’ll turn the corner once he realizes the only thing he can do between now and the convention in late July is hobble Clinton and her ability to get a head start on outmaneuvering Donald Trump, not to mention damage the party’s increasing chances at making gains in Congress.

No matter what happens in today’s primary, with Democrats adding 2.3 million voters to their ranks in the past four months, CA has become increasingly blue and will be an insurmountable challenge for Trump come November.

GARY’S GAINS

Libertarian presidential nominee Gary Johnson may not have solidified a serious position in the election race yet, but he’s sure on his way – he’s currently polling at 10 percent and gaining ground. Senator Ben Sasse (NE) – who was long considered as a potential third-party nominee – may be hopping on team Johnson. While Trump continues to double down on his hijinks and as Johnson begins to pick up big endorsements and earns media coverage - he’ll climb in the polls – something he needs to happen to be included in the general election debates.

"Big mean reversion move higher this morning for European Equities (which got hammered again last week); Italian stocks leading +1.99% on the MIB Index (after falling another -3.8% last week to -19% YTD); that’s helping US Equity futures, but #EuropeSlowing is not (yet) the latest bull case for US stocks."

Take a look at the chart below of select European equity markets and the respective drawdowns from the 52-week highs in the highlighted column.

4 Charts: An Appraisal Of The Fed's Perennially Faulty Forecasts

Do you believe the Fed's forecasts?

Well ... do you?

You shouldn't.

Take a look below at the downwardly-revised projections for the year-end 2016 Fed Funds rate (via the median of the FOMC's dot plot) in the green line below. At its height in 2014, the FOMC expected the year-end 2016 Fed funds rate to be just shy of 3%.

The FOMC's March forecast? Under 1%.

Click to enlarge.

Looking out a few years, via their latest projections from March, the Fed heads expected the Fed funds rate will be just below 2% in 2017 and, in 2018, hit 3%.

Note: Less than 6 months into the year, the Fed has pivoted from hawkish (December) to dovish (March/April) to hawkish (May) and will now pivot back to dovish again. So the question now is what does that do to the dot plots?

Well, the market is guessing...

The implied rate hike probability for June has been squashed to 0% today, versus 30% just eleven days ago the time span between which Fed head Janet Yellen flipped back to dovish again.

It's also worth reflecting on the historical market bets for a June rate hike, if only to visually understand the Fed's circuitous pivots from "hawkish to dovish." Six months ago, Fed funds futures put the probability of a June hike at a whopping 68%!

There's one key takeaway...

The risk to investors is believing the Fed's serially-overoptimistic forecasts.

U.S. Jobs Signaling Late-Stage Risk

Takeaway:While the market is taking a "bad news is good news" approach, the reality is that the labor market is slowing down.

Last Friday's weak non-farm payrolls report was the most important takeaway on the week. Surprisingly, it had only a nominal impact on many of the risk metrics we track. This was likely because the market took the bad news as a sign the Fed won't move on interest rates in June.

To be clear, the paltry 38,000 jobs added in May was the lowest NFP reading since September 2010. Even if you add back the approximately 35,000 striking Verizon workers, the "real" number was still sub-80K -- that's obviously well below potential and weak by any reasonable measure.

Bottom line? Coupled with the 60,000 downward revision to March/April NFP ... and the now growing (Y/Y) trend in initial jobless claims... the U.S. labor market mosaic is increasingly comporting with our cycle twilight narrative.

Watch U.S. Macro analyst Christian Drake discuss the “Labor Market Conditions Index” which just posted its 5th straight month of negative reading (worse since '09) and what it portends for Fed policy.

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